by Cheryl Withrow; Updated April 27, 2018
As an employer, you want an employment contract that protects you and your business, while ensuring a suitable work environment for your employee. When both interests are equitably served, your company and your employee reap benefits. Providing an employment contract essentially replaces the standard hiring understanding between you and your employee. With a contract, the employer-employee relationship gets spelled out in detail, and contains significantly more elements than a standard employment agreement.
Define the Position
Any employment contract should provide a prospective employee with a clear understanding of the job requirements, including the name of the position and the essential duties it entails. The contract should also spell out the place and hours of employment. Use concise and straightforward language, leaving no doubt as to your expectations as an employer.
Length of Agreement
When preparing a contract, it must contain elements favorable to both parties. Therefore, an employment contract should dictate an original term of employment and stipulate conditions that are applicable to you and your employee to extend, reduce or terminate the contract term.
In reviewing performance requirements for insertion in the contract, consider establishing any skills you would like upgraded during the term of the contract. Include production goals you want realized and revenue enhancements you require. If a sales-based position, insert sales volume expectations and recruitment of new clients. Incorporate any other performance barometers you plan to measure and for which you will hold the new employee accountable.
Any prospective employee expects an employment contract that defines compensation. When you negotiate a salary and put the figures in the contract, specify a base wage and dictate the method of payment — salaried, hourly or commission. Commit your overtime authorization policy to the contract. If the position involves commission payment, spell out the percentage; how you handle draws against commissions; and how termination of employment affects any pending contracts. If your company has an incentive program, clearly state its objectives. Include how you handle expense accounts as well.
Spell out your new employee’s benefit package in the contract. Include any health, dental, vision or other insurances you offer. Also, state any percentages of benefit premiums the employee has to pay. If professional licenses, dues or memberships are necessary, make it clear in the contract who pays for their acquisition and payment. Also cover other items such as holidays, vacations, stock options, any profit sharing your company offers and retirement plans you provide for employees.
If applicable, you may want to include covenants that include non-disclosure language, non-solicitation periods, a non-recruit agreement and a non-compete clause. In some states, non-compete clauses are not enforceable. Check with your attorney for laws in your company’s state of operation. You may also consider the inclusion of a property rights clause that covers ownership of existing clients and equipment, as well as any licenses, patents or copyrights held by your company.
Although not a pleasant thought, you must cover termination language. Specifically explain what happens if an employee is let go with or without cause. Ensure that you include a definition of both scenarios and cover severance terms that apply in each incidence.